California controller plans to stop issuing IOUs Sept. 4

California Controller John Chiang announced today he can stop issuing IOUs to pay state bills on Sept. 4, almost one month earlier than expected. The decision clears the way for the state treasurer to redeem existing IOUs beginning Sept. 4. The IOUs do not come due until Oct. 2.

In a press release, Chiang said he has completed “stress testing” the Department of Finance’s cash projections from the state’s newly-revised budget and has determined the new spending plan will provide the state with enough cash to stop issuing IOUs on September 4.

The Pooled Money Investment Board — which includes the controller, treasurer and finance director — will meet August 21 to consider Chiang’s recommendation. If it is approved, on Sept. 4 the state will stop issuing new IOUs, starting redeeming existing IOUs and stop paying interest on existing IOUs. The IOUs are paying tax-free interest at an annual rate of 3.75 percent.

People holding IOUs can redeem them in person at the state treasurer’s office or via mail. The address is 915 Capitol Mall, Sacramento, CA 95814.

According to Chiang, the state will need to borrow $10.5 billion to meet California’s cash needs for the current fiscal year, which ends June 30. To get it through September, however, the state needs to borrow $1.5 billion by Aug. 28.

Treasurer Bill Lockyer’s office announced it will borrow $1.5 billion no later than Aug.28 by selling short-term, “interim” revenue anticipation notes or RANs.

In mid-September, the treasurer will sell $10.5 billion of RANs to pay off the interim loan and meet the state’s cash flow needs through the end of the fiscal year.

The controller started issuing IOUs to pay certain state bills on July 2. Since then, he has issued 327,000 IOUs totaling $1.95 billion. For more information, see www.sco.ca.gov.

“While we can finally put an end to this difficult, and frankly, shameful chapter in the state’s history, it does not bring an end to our fiscal challenges,” Chiang said. “I urge the governor and Legislature to continue their efforts to fix the state’s structural budget deficit and ensure we are never again forced to issue IOUs or delay payments to California families and small businesses.”